Let’s fix up some saving

We all love money and wish to be millionaires one day. But not all of us are lucky to inherit a wealth or hit a jackpot to turn into millionaires overnight.

The option available for most of us is to adopt conventional methods of saving and investment. Even with the plethora of avenues like stocks, real estate, Mutual Funds and the like available presently for saving and building on that saving, the most traditional method, being Fixed Deposit still remain a popular choice among the masses.

Skeptics may argue against this form of investment citing inflation unfriendly and taxability of returns, but this traditional method of saving still retains an edge over others on many counts.

Let us understand some benefits of this saving scheme where the deposit of a principal amount for a fixed tenure with higher interest rates enables one to enjoy the principal along with interest earned over the tenure, when it attains maturity.

Safety First:

With guaranteed return of the principal once the tenure is over along with the interest either on maturity on a monthly, quarterly or annual basis, if safety is what would determine how one should invest one’s money, then Fixed Deposits are the safest investment option in today’s economy.

Higher Interest than Savings Account:

Fixed Deposits offer much higher interest rates as compared to a normal savings account since you are committing to deposit your savings for a fixed period of time. The rate of interest varies according to the tenure of the maturity with longer duration deposits generally earning a higher interest rate as compared to the short duration ones.

Yield higher than interest rate:

If you choose to reinvest the interest earned on your fixed deposits every quarter and opt to claim the entire interest along with the principal at the time of maturity, it is interesting to note that you would get the benefit of earning compound interest. Hence, the effective yield on Fixed Deposits will be higher than the offered interest rate.

Regular income accrual at fixed intervals:

A big advantage that this conventional form of investment has over others is for those who need a regular source of income on periodical basis. Fixed deposits are the only investment which offers you the option of receiving interest at fixed intervals, be it monthly, quarterly or annual.

Higher interest for senior Citizens:

Grannies and Grandpas who have spent their lives for their children and grandchildren certainly are entitled to a little more than others. Fixed Deposits of most banks have a higher interest rate for senior citizens as compared to others.

Loan against Fixed Deposits:

Loan against fixed deposits are perhaps the easiest and fastest mode of obtaining a loan of up to 90% of the principal amount plus accumulated interest, in case of any emergency. Much cheaper than personal loans, it also involves very less paper work and the entire process can be completed in less than an hour.

Benefit of Tax Deduction:

Fixed deposits with a lock-in period of 5 years are also eligible for deduction from the gross total income under the provisions of Section 80C of the Income Tax Act, 1961 in the year of investment. This benefit is a boon for small investors who look for earnings on investment along with tax redemption.

Split Investment to lessen TDS burden and cover Insurance:

Tax deduction of source on interest income on Fixed Deposits is applicable only if the interest income from one branch of any bank exceeds INR 10000/- (INR 50000/- for senior citizens) and hence the benefit of splitting the investment in fixed deposits with different banks will lessen the TDS burden. The splitting will also help in full coverage of the insurance up to INR 1 lakh per bank.

Exemption of interest up to limit for senior citizens:

The interest earned on the Bank Fixed Deposits are exempt from tax up to a certain limit for senior citizens which makes it even more attractive for this class of investors. The limit of exemption has been increased to INR 50000/- in the recent Finance Bill.

Easily encashable:

In case of a sudden cash crunch, no other form of investment can be as liquid as a Fixed Deposit. Apart from the option of loan against FD as mentioned above, these deposits can be immediately encashed with the money being transferred back to your Bank account in no time.

Flexibility of tenure:

The biggest advantage that Fixed Deposits carry over its competitors is the flexibility of tenure wherein one can deposit any amount of one’s choice for any tenure ranging from 7 days to 10 years. This flexibility helps in perfectly planning your savings for future so that the money is available exactly when you need it.

Cultivating the habit of saving:

Last but not the least, investment in Fixed Deposits is the easiest, fastest and the simplest way to cultivate the habit of saving. Enabling the deposit to remain till it attains maturity is the best way to inculcate this habit.

With the rising interest rates presently, Fixed Deposit surely remains an important tool of investment which one should have in one’s basket of investment portfolio. The online FD Calculator available can help you identify the maturity amount, the interest that you can earn and the value of your principal investment on any date.